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Sonoma hikes building fees, citing study that it’s missed out on over $500,000 a year

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Developers seeking to build in Sonoma will find themselves faced with higher permit fees this year after an extensive review of the city’s fee schedule found the city had set fees that didn’t cover staff costs, losing out on up to nearly half a million dollars a year.

The fee hike comes amid a countywide rush to spur new housing development, so Sonoma officials were eager to stress that it should not be seen as a barrier to development, but rather as a correction of a long-standing discount that developers have enjoyed for years.

“It’s frequently said that one of the barriers to development in Sonoma is that it’s too costly,” Mayor Amy Harrington said at the Dec. 17 Sonoma City Council meeting, where the new fee schedule was approved. “This makes clear that this is not a valid argument, that we’ve had the lowest fees of anywhere, yet we have not seen the most development.”

A year-long, city commissioned study by the Matrix Consulting Group found Sonoma’s Planning Department was recovering only about 15 percent of its budgeted costs over years, with taxpayer money making up the difference. The shortfall may have amounted to millions of dollars over the years.

The study compared the cost of staff-time spent on project development with the cost of permit fees for applicants. Most municipal planning departments rely heavily on the fees they charge to support staff and program costs.

The example used in the report was for the fiscal year of 2017-18, when projected revenue for the Sonoma Planning Department called for $85,742 in fees, compared to a projected annual expenditures of $563,641, adding up to a deficit of $477,899.

Sonoma Planning Director David Storer, who presented the final report to the council, emphasized that the fees charged to this point were “woefully low.”

“In my (30 years of) experience I’ve never seen fees that low before,” Storer said at the meeting. “You’re offering a deal to developers, and we’re not getting cost recovery back from them.”

Storer became planning director on Oct. 9, replacing long-time director David Goodison who retired in August. The fee review was already in progress when he joined the city staff.

The Planning Department’s staff report, which was presented at the meeting alongside the study, held that “the current application fees did not reflect the best practice of using deposits for larger projects to ensure that the applicant is covering the costs for their project.”

One example cited by staff was the fee for a planned unit development, currently at $1,465. But the average total cost of processing that fee, including staff time and indirect costs, was $9,830 – a shortfall of $7,365.

The revised fee schedule proposes a deposit of $5,000 for such permits, an increase of $3,535 for the initial permit. In addition, the new fee structure is on a “cost-recovery basis,” said Storer, which means that additional charges (or “replenishment funds”) can be levied against the developer when it becomes clear the initial deposit will be insufficient to cover costs.

Once the permitting process is done, the city will return to the developer any unused funds that were collected.

The new fee schedule will require city staff to implement “time tracking” on all projects — similar to the billing practices found in law and other professions, noted Harrington, a practicing attorney.

City Manager Cathy Capriola said that three planners, the public works director, city clerk and city manager would all be trained to track their time on each project, and those direct costs would be allocated to each permit process.

Hourly costs for staff time would increase from the current $110 to $162 per hour, which Matrix indicated would be consistent with the actual cost of such services.

Indirect costs such as division and departmental administration, management and clerical support, and citywide overhead will be calculated and factored in as well.

“It’s going to take some training and it’s going to take some time, but it will get us moving and we need to move in this general direction,” Capriola said.

Storer said that the city had already been in contact with the development community about the proposed increases. No objections have been raised, he said.

“It’s not new to them, it’s not a new process, it’s something that they can work with,” Storer said in an interview.

Certain fees will remain fixed, rather than on the cost-recovery basis, though many of those are set to increase as well. For example a public notice for a proposed development – of which 73 were issued last fiscal year – is set to increase from $91 to $173, still only about half of real cost, according to the Matrix study.

A temporary use permit will increase from $93 to $263, while a home occupation permit will jump from $71 to $77.

One significant, unchanged fee covers appeals challenging development proposals. That fee will remain unchanged at $400, though total average cost of appeals is given as $8,418. As a comparison, Sonoma County’s appeal fees are on a cost-recovery basis, and as such can easily exceed $10,000. But the city decided to hold off on applying cost recovery basis to appeals pending further review.

“Cost recovery for planning fees has been in place in all cities that I’ve worked for previously and is a best practice so that the General Fund is not subsidizing the cost of individual development projects,” said Capriola. She pointed out that a survey of all cities in the county found that Sonoma was the only one not to have cost recovery for planning.

The council approved the new fee schedule in a 3-0 vote, with council members David Cook and Madolyn Agrimonti not in attendance. The new rates will go into effect Feb. 20.